Variable Annuities: The Secondhand Smoke of Investments

A well-known Investment Advisor recently called Variable Annuities the ‘cigarettes of the investment world.”

What apparently is meant by the quote is that Variable Annuities may be toxic to your financial health.

Why? Because the promises made by the sellers of these products are too good to be true. And what are those promises? Here are some:

  • “Earning 6% guaranteed is much better that the uncertainty of the markets”;
    • the S&P 500′s return over the past 10 years was 6.34%, which was better than the perceived return of this guaranteed 6% annuity, and this is so even through some of the worst markets in recent history.
  • “Variable Annuities are an investment and you aren’t losing money upfront”;
    • the price paid for an annuity is a loss you may never recover from because generally for the first decade your Internal Rate of Return is 0% and you are just getting your own money back. Even if you lived forever the internal rate of return would never exceed the 6% guaranteed because of the loss of the original investment.
  • “An annuity is longevity insurance”;
    • Immediate annuities are not fixed for inflation; therefore the payments are fixed in dollars whose buying power severely diminishes by inflation year after year. For instance, according to the government consumer price index (CPI), $5,081 in 1970 had the same buying power as $30,000 today.

These promises, like second hand smoke, permeate the advice given by many Advisors and brokers. Why? Because these products hide the “obscenely gargantuan commissions” that flow to the sellers and sponsors.

If you believe that you were sold a variable annuity that was inconsistent with your investment objective contact Attorney Howard Rosenfield at (860) 677-4334 or email howardrosenfield@stockbrokerproblems.com.

Attorney Rosenfield is also available to speak on specific subject matter topics related to advisor negligence, misconduct, or investment fraud.

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